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Q2 GDP: COVID-hit economy still in negative, but data holds out promise for positive report soon

The COVID-19 pandemic’s effect on the Indian economy has been brutal and debilitating. A disaggregated analysis of the Q2 GDP numbers, however, held out hope amid the piling rubble of ruin with many sectors including manufacturing, agriculture, and electricity reporting smart rebound

November 28, 2020 / 12:55 AM IST

As of November 26 evening, there were 9.31 million reported Covid-19 positive cases in India, accounting for about 15 per cent of the world’s 61 million cases.

In March, when the coronavirus started to rapidly engulf the country’s landscape, the government had to make a hard trade-off of choosing between lives and livelihood. It chose the former, imposing one of the most stringent lockdowns, a standard, and perhaps the only, tool that embattled governments had at the time.

Curative medicines, let alone vaccines, were still a very distant certainty, as epidemiologists, scientists, and biostatisticians rummaged through the mountains of data in mankind’s battle against the virus.

The Indian government, much like most others, deployed the lockdown to slow down the virus’ spread. For the economy, the lockdown’s effect was equivalent to a boxer in prime form getting knocked down by a blunt blow from behind.

The latest gross domestic product (GDP) data that the National Statistical Office (NSO) released on November 27 showed that India has slipped into a technical recession. From being toasted as an engine for global growth with the status of the world’s fastest growing major economy, India’s GDP has fallen for two successive quarters.


India’s real or inflation-adjusted GDP shrank 7.5 percent during July-September this year, confirming fears of a crippling slide across several industries and services that continue to bleed profusely through multiple deep cuts caused by COVID-19-induced disruptions.

If one were to plot India’s GDP growth over the last six quarters since April-June 2019-20, the graph would broadly resemble the shape of an elongated arm chair, with the chair’s bottom suddenly collapsing below the floor after April this year, before crawling back again since July.

Two successive quarters of contraction could imply that India could be heading for a full-year fall in GDP for the first time in 41 years. India has never recorded a drop in real GDP growth since 1979. There have been four “negative growth” periods in India since independence: late 1950s, 1965 (-2.6 per cent), 1972 (-0.5 per cent) and 1979 (-5.23 per cent).

Unlike other recessions caused by systemic flaws, this has been brought upon by a medical emergency. It is intentional and unavoidable.

The glimmer of optimism, however, is that this fall has come on the back of an even steeper plunge, when GDP contracted 23.9 per cent in April-June.

In current prices, the picture looks even better with GDP contracting 4 per cent over the corresponding quarter of previous year, compared to 22.6 per cent fall in the first quarter.

The pandemic’s effect on the economy has been brutal and debilitating. A disaggregated analysis of the GDP numbers, however, holds out hope amid the piling rubble of ruin with many sectors including manufacturing, agriculture, and electricity reporting smart rebound during July-September as the economy tentatively started rolling up its shutters.

The big takeaway is from the manufacturing sector that grew 0.6 per cent in during the second quarter of 2020-21 compared to the same quarter last year. Effectively, this implies that the output from factories this year is greater not just over the previous three months, but also compared to last year when the state of the economy was far rosier than it is now.

All other sectors, have, as expected, returned negative growth during the second quarter. The key thread, however, is that most of these sectors—mining (-9.1 per cent), construction (-8.6 per cent), and trade, hotels, transport, communication and broadcasting (-15.6) have shrunk at a slower pace compared to the previous quarter.

These are good markers of an expansionary phase, meaning there is greater activity in farms to companies and factories compared to the first quarter when lockdown had dealt a bludgeoning blow across the broader economy.

Undoubtedly, the pandemic has caused an unprecedented impact on businesses. Both the degree of disruption and prolonged impact of disruption have been exceedingly high.

The national income data showed that different industries, a pattern that has also emerged from anecdotal shop-end as also high frequency data, with sectors such as ed-tech and e-commerce thriving during the pandemic, topped the charts in terms of sales during the pandemic.

Data from other sources show that the economy would have covered a lot of lost ground since September, the end-month for the latest GDP statistics.

Goods and services tax (GST) collections crossed the Rs 1 lakh crore-mark for the first time in 2020-21, a clue that households are spending more than the previous months.

Passenger vehicle wholesale sales in India increased by 14.19 per cent in October; diesel consumption in October rose 6.6 per cent from a year earlier; and petrol sales in October rose above pre-pandemic levels for the second month in a row.

All these are encouraging green shoots, holding out hopes that the economy may rocket back to positive territory soon. The onus to sustain the momentum into the new year will depend on one singular factor: people’s adherence to COVID-appropriate behaviour. Mass masking up is essential to prevent a return to the lockdowns. Otherwise, these will just remain scattered weeds.

Gaurav Choudhury is Consulting Editor, Network 18. Views are personal.
Gaurav Choudhury
first published: Nov 27, 2020 07:42 pm
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